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It’s tough to manage risk without a plan.

Matt Bennett, Commodity analyst

January 10, 2020

4 Min Read
2020 farm business plan
hanohiki/Getty Images Plus

How many of us in production agriculture want a repeat of 2019? I can see you rolling your eyes from here…and this article hasn’t even been posted! There’s no doubt 2019 was the type of year we won’t forget but would like to. However, I’m sure we can all agree how much we’d like to see a repeat of the same type of market action we saw play out last growing season. While not enough corn and beans were sold during the sharp rally over the late spring/summer timeframe, we can’t deny we had amazing opportunities to lock in profit margins or simply to manage price risk at levels we hadn’t seen in some time.

So what can we learn from 2019? Do I blame anyone for being gun-shy on making sales when we had such poor weather? Of course not…it’s tough to sell when we have no idea what our yields may look like. What we can learn from a year like 2019 however, is to manage risk when we get the type of rally we’ve been begging to see. When I went out on the speaking circuit in the winter of 2019, most producers indicated they’d be thrilled with $4 corn…which came and went without enough of it sold, according to elevator managers. With prices soaring to levels not seen in years, in hindsight most producers realize some sort of risk-management should have been employed.

Keeping this in mind, my contention is we need to have a strategy going into every year of what our plan is for marketing our crop. Yes, we can see our situation change so having flexibility should always be at the forefront of our minds. When it gets right down to it though, having our marketing plan in place with price targets in mind before the calendar turns can bring peace of mind as well as a more profitable year. We like setting price targets in place on an individual basis, which is entirely dependent on the producer’s break-even prices. While technical targets are useful tools, hedging our risk in advance of our crop being harvested, let alone being planted, should be done only when a producer feels confident they’re locking in a profitable situation.

We are also big advocates of not only figuring a break-even to assist us in developing a marketing plan…but also keeping tabs on how our break-even fluctuates as sales are made. For instance, if a producer agrees with my assessment in that we should only make sales when profitable in advance of the growing season, they must realize how a profitable sale affects the break-even on remaining bushels. As the growing season develops, our prospective yield might change as well, so keeping our profitability calculators or apps up-to-date is imperative.

The bottom line as we roll into 2020 in my opinion is to have your cost of production figured, know what your break-even is and get your marketing plan put in place. IF we are blessed with rallies to your prices, execute your sales or risk-management plans and keep your flexibility. If we can learn anything from 2019, I would think that not sticking to our plan…or having a good plan, can cost us a ton of money.   

Reach Matt Bennett at 217-254-2713 or [email protected]

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About the Author(s)

Matt Bennett

Commodity analyst, AgMarket.Net

Matt is a Windsor, Ill., farmer and former grain elevator owner. He is Channel Seed’s grain marketing consultant and holds a Series 3 brokerage license doing business through AgMarket.Net, Farm Division of JSA. He specializes in formulating risk-management strategies for corn, soybean farmers and livestock producers. A graduate of University of Illinois, Matt and his wife Tiffany live on the family’s centennial farm where they raise their five children.

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